TRANSACTIONS WITH PARENT AFFILIATE

6 Months Ended

Jun. 30, 2022

Related Party Transactions [Abstract]

TRANSACTIONS WITH PARENT AFFILIATE

TRANSACTIONS WITH PARENT AFFILIATE

The Company completed the Holding Company Reorganization on March 1, 2021 and sold to APA all of the equity in the three Apache subsidiaries through which Apache’s interests in Suriname and the Dominican Republic were held. The Company accounted for the divestiture of its subsidiaries as a transfer to an affiliate entity under common control and no longer consolidates the subsidiaries for periods subsequent to the Holding Company Reorganization. The carrying value of the net assets transferred was $483 million, which included approximately $292 million of cash and cash equivalents, $163 million of oil and gas properties, and working capital items. The Company continues to hold its existing assets in the U.S., Egypt, and the U.K.

The Holding Company Reorganization gave rise to a note payable by APA to Apache. The note has a seven-year term, maturing on February 29, 2028, and bears interest at a rate of 4.5 percent per annum, payable semi-annually, subject to APA’s option to allow accrued interest to convert to principal (PIK) during the first 5.5 years of the note’s term (to August 31, 2026). The note is guaranteed by each of the three subsidiaries sold by Apache to APA. The Company recognized interest income on this note of $16 million and $15 million during the second quarters of 2022 and 2021, respectively, and $31 million and $20 million during the first six months of 2022 and 2021, respectively. The interest income related to this note is reflected in “Financing costs, net” on the Company’s statement of consolidated operations. Apache has allowed interest accrued from March 1, 2021 through February 28, 2022, totaling $61 million, to PIK pursuant to the note.

In the fourth quarter of 2021, in conjunction with the ratification of a new merged concession agreement (MCA) with EGPC, Apache entered into an agreement with APA under which the historical value of existing concessions prior to ratifying the MCA was retained by Apache, with any excess value from the MCA terms being allocated to APA. Sinopec owns a one-third minority participation in the Company’s consolidated Egypt oil and gas business, and approximately 30 percent of the remaining net income and distributable cash flow for the Company’s Egyptian operations is being allocated to APA in 2022. Apache consolidates its Egyptian operations, with APA’s noncontrolling interest reflected as a separate component in the Company’s consolidated balance sheet. In the second quarter and the first six months of 2022, the Company recorded net income attributable to APA’s noncontrolling interest of $85 million and $156 million, respectively, and distributed $95 million in the first six months of 2022 of cash to APA in association with its noncontrolling interest.

The Company continues to provide administrative and support operations to APA related to activities performed for the Suriname and Dominican Republic subsidiaries. The Company is reimbursed by APA for employee costs, certain internal costs, and third-party costs paid by the Company in connection with its role as service provider. All reimbursements are based on actual costs incurred, and no market premium is applied by the Company to APA. The Company incurred $5 million and $9 million in reimbursable corporate overhead charges in the second quarter and the first six months of 2022, respectively.

In August 2021, Apache entered into a promissory note with APA under which Apache may borrow up to $250 million from APA at APA’s discretion. The note has a term of one year, maturing on August 4, 2022, and bears interest at a variable rate per annum equal to the monthly, short-term applicable federal rate, payable semi-annually. As of June 30, 2022, there were no borrowings outstanding under this note. As of December 31, 2021, there was $195 million outstanding under this note, which was reflected as “Note payable to APA Corporation” on the Company’s consolidated balance sheet.

In April 2022, Apache made a promissory note payable to APA in the original principal amount of $680 million. Apache made the note in consideration for APA’s assumption under its U.S. dollar denominated syndicated facility on April, 29, 2022 of Apache’s borrowings outstanding upon the simultaneous termination of its 2018 syndicated facility, as described in Note 10—Debt and Financing Costs. The non-interest-bearing note has a term of one year, maturing on April 28, 2023. Apache repaid $331 million on the note during the second quarter, and the outstanding balance of $349 million as of June 30, 2022 is reflected as “Note payable to APA Corporation” on the Company’s consolidated balance sheet.

From time to time, the Company may, at its discretion, make distributions of capital to APA Corporation. During the first six months of 2022, the Company made capital distributions totaling $733 million primarily in support of APA Corporation’s share repurchase program, dividend payments made by APA, and distributions for APA’s noncontrolling interest during the period. No capital distributions were made in the first six months of 2021.